Rising from its 251st Monetary Policy Committee (MPC), the Central Bank of Nigeria (CBN) announced an increase in the benchmark interest rate by 200 basis points, from 12 to 14 percent. Announcing the MPC's decision, the CBN governor, Mr. Godwin Emefiele, said it was part of measures to attract foreign capital and check headline inflation that has risen to 16.5 percent.
The MPR is the rate at which CBN lends money to banks. If it goes down, the cost of lending by banks to customers goes down and if it goes up, the cost of lending also goes up.
The implication for this new increase is that the cost of lending will go up. Current lending rates hover around 23% to 25% and we can expect this to also increase by at least 1%.
The committee's decisions, Emefiele said, recognised that the CBN "lacked the instruments required to directly jumpstart growth, and being mindful not to calibrate its instruments in such a manner as to undermine its primary mandate and financial system stability, in assessment of the relevant issues, was of the view that the balance of risks remains tilted against price stability.
"Consequently, five members voted to raise the Monetary Policy Rate while three voted to hold."
However, operators in the real sector have faulted the increase of the rate from 12 to 14 percent, describing it as a constraint for business growth.
Speaking to Daily Trust after the meeting, Mr Muda Lawal, the Director General of the Lagos Chamber of Commerce (LCCI) said: "No! This is not in tandem with the economic reality. The economy is down. I mean we are on the threshold of a recession. Things are not going well. Consumer purchasing power is very low and businesses are facing a lot of pressure - pressure from exchange rate, depreciation, pressure from high energy cost, high cost of diesel, high cost of petrol, high transport cost.
"All these costs are enormous and if on top of that you are also increasing the interest rate, from business point of view, I don't think that is the best. I don't think it is the right decision."
The MPR is the rate at which CBN lends money to banks. If it goes down, the cost of lending by banks to customers goes down and if it goes up, the cost of lending also goes up.
The implication for this new increase is that the cost of lending will go up. Current lending rates hover around 23% to 25% and we can expect this to also increase by at least 1%.
The committee's decisions, Emefiele said, recognised that the CBN "lacked the instruments required to directly jumpstart growth, and being mindful not to calibrate its instruments in such a manner as to undermine its primary mandate and financial system stability, in assessment of the relevant issues, was of the view that the balance of risks remains tilted against price stability.
"Consequently, five members voted to raise the Monetary Policy Rate while three voted to hold."
However, operators in the real sector have faulted the increase of the rate from 12 to 14 percent, describing it as a constraint for business growth.
Speaking to Daily Trust after the meeting, Mr Muda Lawal, the Director General of the Lagos Chamber of Commerce (LCCI) said: "No! This is not in tandem with the economic reality. The economy is down. I mean we are on the threshold of a recession. Things are not going well. Consumer purchasing power is very low and businesses are facing a lot of pressure - pressure from exchange rate, depreciation, pressure from high energy cost, high cost of diesel, high cost of petrol, high transport cost.
"All these costs are enormous and if on top of that you are also increasing the interest rate, from business point of view, I don't think that is the best. I don't think it is the right decision."
By Chris Agabi and Sunday Michael Ogwu
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